New broker regulations proposed by Insurance Commissioner John Garamendi following the scandal at Marsh & McLennan Cos. are under broad attack by the insurance industry, which calls them unnecessary, confusing and illegal.
The regulations require brokers to disclose all their compensation and to get the "best available" coverage for commercial clients, among other changes.
The industry has mounted an all-out assault against the regulations, testifying against them at a Sacramento hearing earlier this month. Some two dozen groups and companies have submitted critical comments to the insurance department.
"We don't need new laws to stop bid-rigging and antitrust (activities)," said Dan Dunmoyer, president of the Personal Insurance Federation, a state trade group representing property and casualty insurers. "They already are illegal in California."
Last year, the chief executive of Marsh, the world's largest brokerage, was forced to resign after New York State Attorney General Eliot Spitzer accused company brokers of rigging bids from insurers and steering business to them in exchange for back-end commissions. (Earlier this month, a Marsh broker pleaded guilty to defrauding a customer, the first company employee to be convicted in the scandal.)
In response, Garamendi, who had said at the time he was conducting his own probe into the insurer, published the new regulations that he said would help prevent another such scandal.
Industry officials charge that the regulations are unnecessary and that the commissioner is making new law as opposed to interpreting law. They have particularly taken issue with the mandate that brokers get the "best available" coverage, saying that such a requirement would increase legal liability of what is considered a judgment call involving the weighing of varying factors.
"The proposed set of regulations proposed by Commissioner Garamendi is frankly just a stupid idea," said Stephen Young, general counsel of Insurance Brokers and Agents of the West, a trade group that represent state insurance brokers.
Amy Bach, executive director of United Policyholders, a San Francisco-based consumer advocacy group that has filed purported class action lawsuits against brokerages over their commission practices, said she knew that the "best available" coverage mandate would draw heated response.
"It's true the word 'best' is very loaded. I think (it) could be modified to be something like 'appropriate' or 'most appropriate'," Bach said.
Bach said her group would like to seek a compromise with the industry on that wording and other issues. "The industry tends to overreach whenever there is a proposed regulation, but they have got to know there is a problem that has to be addressed," she said.
Garamendi spokesman Norman Williams said the department must consider the criticism before submitting the regulations for final approval to a state administrative law judge. While they may be amended, he said the commissioner stands by them. "He is very comfortable with these rules," Williams said.
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